CREATE CORPORATION FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥17.99B
• Operating Income: ¥294M
• Net Income: ¥158M
• EPS: ¥40.52

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Mixed quarter—top-line growth and margin expansion drove double-digit profit gains, but cash conversion deteriorated and leverage (on a liabilities basis) remains elevated. Revenue rose 3.5% YoY to 179.9, with operating income up 34.8% to 2.94 and ordinary income up 38.5% to 2.77, indicating improved operating leverage. Net income increased 47.0% to 1.57, lifting EPS to 40.52 yen. Gross margin stood at 17.5%, and operating margin improved to 1.63%; we estimate operating margin expanded roughly 38 bps YoY (from ~1.25% to 1.63%). Ordinary margin was 1.54%, and net margin was 0.87%, highlighting a still thin profitability structure despite the improvement. Non-operating income (0.26) was more than offset by non-operating expenses (0.43), though the net impact was modest at the ordinary level given the strong operating improvement. The effective tax rate was high at 43.3%, muting bottom-line flow-through. On earnings quality, operating cash flow was negative at -4.50 against positive net income of 1.57 (OCF/NI -2.87x), indicating significant working capital absorption in the period. Liquidity is adequate with a current ratio of 126% and quick ratio of 105%, but total liabilities to equity is high at 2.33x, reflecting reliance on operating liabilities and other payables. Interest-bearing debt is modest (short-term 11.60, long-term 3.13), and interest coverage is strong (33.9x), mitigating immediate solvency concerns. ROE is 2.9% via DuPont (0.9% margin × 0.999 asset turnover × 3.33x leverage), but ROIC at 3.2% is below the 5% warning threshold, suggesting low capital efficiency. Capital expenditures were light (0.25), yet financing cash inflows (8.00) covered OCF deficits, indicating reliance on external funding this half. The calculated payout ratio of 96.1% looks stretched relative to cash generation this period, raising sustainability questions if cash conversion remains weak. Forward-looking, sustaining operating margin gains while normalizing working capital will be critical to support dividends and reduce balance sheet strain.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 0.9% × Asset Turnover 0.999 × Financial Leverage 3.33x = ROE 2.9%. The most notable change this quarter was margin expansion at the operating level: operating income grew 34.8% on 3.5% revenue growth, lifting operating margin to 1.63% (≈+38 bps YoY). The business driver appears to be tighter SG&A control and some gross margin resilience, given revenue growth outpaced cost growth at the operating line; SG&A is 15.8% of sales (28.46 on 179.90). Non-operating items were slightly negative on balance (0.26 income vs 0.43 expense), but not a primary swing factor. Sustainability: moderate—cost discipline can persist, but structurally thin gross margins (17.5%) and a high effective tax rate (43.3%) cap net margin expansion unless pricing/mix or procurement efficiencies improve. Watch for any negative trend where SG&A growth outpaces revenue; for now, operating leverage is positive (OP +34.8% vs Rev +3.5%), but durability needs confirmation in seasonally stronger halves.

Growth Assessment

Top-line growth of 3.5% suggests steady demand, likely driven by existing operations as no one-off investment gains were reported. Operating profit growth (+34.8%) indicates improving operating efficiency; however, net profit growth (+47.0%) benefited from a low base and despite a high tax rate. Profit quality is mixed: operating improvement is genuine, but cash realization is weak (OCF negative). With ROIC at 3.2% (below 5% warning), capital efficiency remains a headwind to compounding. Outlook hinges on sustaining margin gains while reducing working capital drag; if OCF normalizes in H2, FY profitability could translate to cash and support deleveraging.

Financial Health

Liquidity: Current ratio 126% (>1.0 but below 1.5 benchmark) and quick ratio 105% (>1.0) indicate adequate short-term coverage; no immediate warning threshold breaches. Solvency: Total liabilities/equity at 2.33x is high (warning), but interest-bearing debt is modest (ST 11.60, LT 3.13) and interest coverage is strong at 33.9x, implying manageable financial risk. Maturity mismatch: Short-term loans (11.60) are comfortably covered by cash (17.09) and receivables (50.04); current assets (136.11) exceed current liabilities (108.04), reducing refinancing risk. Off-balance sheet obligations: Not disclosed; no data to assess leases/guarantees. Net: Elevated leverage from operating liabilities, but limited funding costs and solid coverage mitigate near-term stress.

Cash Flow Quality

OCF/Net Income at -2.87x flags low earnings quality this period, likely due to working capital absorption (receivables/inventories build or payables reduction; exact drivers not disclosed). With CapEx at 0.25, underlying FCF would still be negative given OCF of -4.50. Financing cash inflow of 8.00 covered the cash shortfall, indicating reliance on external funding in H1. No clear signs of manipulation are visible from disclosed data, but the divergence between profits and cash warrants monitoring (collections discipline, inventory turns, and payment terms). Sustained negative OCF would pressure dividends and require continued financing or working capital normalization.

Dividend Sustainability

Calculated payout ratio is 96.1%, elevated versus the <60% benchmark and not supported by current-period cash flows (OCF negative; FCF not disclosed but implied negative). With CapEx low, the main determinant is OCF normalization in H2; without it, dividend coverage would rely on balance sheet or financing inflows. Dividend policy details and actual dividends paid are unreported, adding uncertainty. Unless cash conversion improves, sustaining a high payout could constrain reinvestment or necessitate higher leverage.

Risk Assessment

Business Risks:

• Thin margins (OP margin 1.63%, net margin 0.87%) amplify sensitivity to small cost or demand shocks
• Working capital volatility causing negative OCF despite profit
• High effective tax rate (43.3%) dampens net profit scalability
• Dependence on non-operating items is modest but volatility remains possible

Financial Risks:

• High liabilities-to-equity leverage (2.33x) despite low interest-bearing debt
• Dividend coverage risk given negative OCF and high payout ratio (96.1%)
• Potential refinancing/rollover needs if working capital remains stretched, albeit mitigated by cash and receivables
• ROIC at 3.2% (<5% warning) indicates low capital efficiency

Key Concerns:

• Earnings quality flagged (OCF/NI -2.87x)
• Sustainability of margin gains without clear gross margin or SG&A breakdown disclosures
• Limited disclosure on investing CF, dividends paid, and detailed SG&A components
• Tax rate persistently above normative levels could continue to weigh on net

Investment Implications

Key Takeaways:

• Positive operating leverage: OP +34.8% on Rev +3.5%, operating margin up ~38 bps YoY
• Cash conversion weak: OCF -4.50 vs NI 1.57; earnings quality risk
• Balance sheet shows high leverage on a liabilities basis (2.33x) but low funding cost risk (interest coverage 33.9x)
• ROE modest at 2.9%; ROIC low at 3.2%, signaling need for efficiency improvements
• Dividend sustainability questionable near term given high payout ratio and negative OCF

Metrics to Watch:

• OCF and working capital components (AR days, inventory turns, AP days) in H2
• Operating margin trajectory and SG&A-to-sales ratio
• Effective tax rate normalization potential
• Net debt and financing CF reliance
• ROIC progression and capital allocation discipline

Relative Positioning: Within Japanese small-cap retail/wholesale peers, the company exhibits thinner-than-average margins, modest ROE, and below-benchmark ROIC, offset by solid interest coverage; improvement depends on sustaining cost discipline and normalizing cash conversion.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis